UK contractors pitching for major Middle East projects against rivals from China, Korea or Australia have been given a negotiating boost by a new government programme, according to Carillion’s corporate affairs director John Denning.
UK Export Finance, the government agency that underwrites bank loans to UK exporters, or to overseas clients hiring UK contractors, is offering a new export refinancing facility (ERF) that will underwrite up to £5bn of project refinancing.
Projects that are built with loan finance from banks often seek to reduce their borrowing costs once the project has been built and “de-risked”, by switching to bond finance. UK Export Finance says it will now guarantee the repayment of bonds issued by the buyer.
Carillion is currently building several projects in the Gulf where its clients have benefited from UKEF loan guarantees, and Denning says that the new ERF facility should help future contract negotiations. It is the first time this financing approach is being used for civil project finance by an export credit agency.
Denning told CM: “It introduces another form of financial guarantee that gives more flexibility to people trying to get projects off the ground. It’s a new development from UKEF, it introduces a new option.
“Clients will always be talking to other contractors from around the world, and this means we can offer another form of financial support. It’s a competitive environment, and this gives the promoter more flexibility if they don’t want to be tied into a bank loan once the project is built and de-risked. They know we will be able to help them in the longer term too.”
UKEF guarantees have helped Carillion win the Hard Rock Hotel project in Abu Dhabi
Scaling up construction exports overseas is a target of Construction 2025, and Denning said that UKEF had made a “major effort to step up its activity” in recent years. “It’s been encouraged to be active and get out there to help UK plc,” he said.
UKEF guarantees have featured in Carillion’s Festival City in Cairo, in two residential projects in the Downtown Dubai district, and in two recent project wins: the Hard Rock Hotel in Abu Dhabi and the Avenue City Walk retail project in Dubai.
Denning said that Carillion expected to deliver revenue growth this year in the rapidly-recovering Middle East market. He added: “We’re beginning to see signs of World Cup activity coming through in Qatar, even at reduced size it’s still massive. And Dubai is being helped by the fact it’s got Expo 2020 – they’re treating it very seriously and spending about $20bn on it.”
Referring to the ongoing scrutiny of labour conditions in Qatar, he said that Carillion had always aimed to provide exemplary labour conditions in its 45 years in the region.
“As a contractor, we have tried to differentiate ourselves on labour – how workers are housed, fed and provided for. That costs more, and on some projects we will simply not bother to bid. But if the client wants to build something prestigious, which will be there for a long time and has to be delivered on time, then they will offer a reasonable margin and we’ll bid in those circumstances.”